Snap to face didn't help as expected
Finally I did the following:


Applied shrinkWrap modifier.
Applied mirror modifier
Used ShirkFlatten and was able to scale the tshirt


But still few vertices were sticking to body object.

Then finally ended up clearing things. Selected faces from body object that will form tshirt and duplicated it. Then P to separate then Shrink Flatten. Used this as tshirt, it was easier this way.